RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/177 
22 January 2007  
 
(07-0241) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
EUROPEAN COMMUNITIES 
 
  
 
This report, prepared for the eighth Trade Policy Review of the European 
Communities, has been drawn up by  the WTO Secretariat on its own 
responsibility.  The Secretariat has, as required by the Agreement establishing 
the Trade Policy Review Mechanism (A nnex 3 of the Marrakesh Agreement 
Establishing the World Trade Organization), sought clarification from European 
Communities on its trade policies and practices. 
 
Any technical questions arising from this report may be addressed to 
Mr. Ricardo Barba (tel: 022/739 50 88), Mr. Arne Klau (tel: 022/739 57 06), or 
Mr. Jacques Degbelo (tel: 022/739 55 83). 
 
Document WT/TPR/G/177 contains the policy statement submitted by the 
European Communities. 
 
 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
 session of the meeting of the Trade Policy Re view Body on the Eu ropean Communities. European Communities WT/TPR/S/177 
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CONTENTS 
 
  Page 
 
SUMMARY OBSERVATIONS ix 
 (1) T HE ECONOMIC ENVIRONMENT  ix 
 (2) I NSTITUTIONAL FRAMEWORK  ix 
 (3) T RADE POLICY INSTRUMENTS  x 
 (4) S ECTORAL POLICIES  xi 
 (5) T RADE POLICY AND TRADING PARTNERS  xii 
I. ECONOMIC ENVIRONMENT 1 
 (1) M AIN CHARACTERISTICS  1 
 (2) R ECENT ECONOMIC DEVELOPMENTS  3 
 (3) T RADE PERFORMANCE AND INVESTMENT  8 
 (i) Trade in goods 8 
 (ii) Trade in services 12  (iii) Foreign direct investment 13 
 (4) O
UTLOOK  14 
II. TRADE AND INVESTMENT REGIMES 16 
 (1) I NSTITUTIONAL FRAMEWORK  16 
 (2) P OLICY FORMULATION AND IMPLEMENTATION  17 
 (3) T RADE POLICY OBJECTIVES  19 
 (4) T RADE REGULATIONS AND BUSINESS ENVIRONMENT  21 
 (5) T RADE AGREEMENTS AND ARRANGEMENTS  23 
 (i) Overview 23  (ii) WTO 24 
 (iii) Preferential trade agreements and arrangements 28 
III. TRADE POLICIES AND PRACTICES BY MEASURE 40 
 (1) I
NTRODUCTION  40 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  40 
 (i) Customs procedures and valuation 40 
 (ii) Common Customs MFN Tariff 42 
 (iii) Other duties and taxes 47  (iv) Duty and tax exemptions and concessions 51 
 (v) Rules of origin 51 
 (vi) Tariff preferences 52  (vii) Import prohibitions, restrictions, and licensing 52 
 (viii) Contingency trade remedies 54 
 (ix) Technical barriers to trade (TBT) 57  (x) Sanitary and phytosanitary (SPS) measures 59 
 (xi) Government procurement 61 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  64 
 (i) Registration and documentation 64 
 WT/TPR/S/177 Trade Policy Review 
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 (ii) Export taxes, charges, and levies 65 
 (iii) Export prohibitions, re strictions, and licensing 65 
 (iv) Export subsidies 66 
 (v) Export assistance 66 
 (vi) State-trading enterprises 67 
 (4) M EASURES AFFECTING PRODUCTION AND TRADE  67 
 (i) State-owned enterprises 67 
 (ii) Competition policy and regulatory issues 67  (iii) Intellectual property rights 73 
IV. TRADE POLICIES BY SECTOR 79 
 (1) I
NTRODUCTION  79 
 (2) A GRICULTURE AND RELATED ACTIVITIES  79 
 (i) Main features 79 
 (ii) Common Agricultural Policy (CAP) 82 
 (3) F ISHERIES  95 
 (i) Main features 95 
 (ii) Common Fisheries Policy (CFP) 96 
 (4) E NERGY   99 
 (5) M ANUFACTURING  102 
 (i) Overview 102 
 (ii) Selected industries 104 
 (6) S ERVICES  109 
 (i) Overview 109 
 (ii) Financial services 111 
 (iii) Telecommunication and postal services 117  (iv) Transport 121 
 (v) Tourism 127 
REFERENCES   129 
APPENDIX TABLES  135 
 
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CHARTS 
  Page 
I. ECONOMIC ENVIRONMENT 
 I.1 Direction of merchandise trade, 2000-05 10 
I.2 Structure of merchandise trade, 2000-05 11 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Breakdown of applied MFN tariffs, 2006 44 
III.2 MFN tariff distribution by ISIC sector, 2006 45 
III.3 Tariff escalation by ISIC 2-digit industry, 2006 47  
IV. TRADE POLICIES BY SECTOR 
 IV.1 EC tariff by ISIC  classification, 2006 105 
 
 
TABLES 
 
I. ECONOMIC ENVIRONMENT  
I.1 Selected indicators, 2005 1 
I.2 Key macroeconomic indicators, 2004-05 4 I.3 Growth in real GDP  and expenditure components, 2001-05 5 
I.4 Euro exchange rates, 1998-05 7 
I.5 Trade in services, 2003-05 12
 
I.6 FDI inflows and outflows, 2003-05  13 
 II. TRADE AND INVESTMENT REGIMES  
 
II.1 Selected EC notifications to the WTO, October 2006 26  
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Structure of the EC MFN tariff, 2004-06 43 
III.2 Items with problems of consistency between conventional and autonomous rates 43 
III.3 Structure of the EC MFN tariff, by WTO sector, 2006 44 III.4  Summary analysis of EC applied MFN tariffs, 2006 46 
III.5 National VAT rates in the EC 48
 
III.6 VAT exemption thresholds in the EC 49 
III.7 Thresholds for excise duty exemptions on imports (for personal use) 
 from non-EC countries, 2005  50 
III.8 Contingency measures notified by the EC 56 III.9 WTO Notifications of technical regulatio ns by the EC and Member States, 1995-06 58 
III.10 EC's emergency SPS measures 60 
III.11 Minimum thresholds, mid 2006  62 III.12 Open procurement indicators, 2002-04 64 
III.13 State aid in the EC, 2004 72 
III.14 Statistics on trade marks and designs, 2000-06 74 
III.15 Patent applications at the European Patent Office by bloc of origin, 1998-04 75 
 IV. TRADE POLICIES BY SECTOR 
 
IV.1 Selected agricultural statistics, 2005 80 WT/TPR/S/177 Trade Policy Review 
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IV.2 Agricultural area by main type of farming, 2005 81 
IV.3 EC support for rural development, 2007-13 86 IV.4 Guarantee and guidance expenditure by Member State, and national 
 expenditure on agriculture, 2004 87 
IV.5 Guarantee expenditure, by product, 2004-06 88 IV.6 Transfers associated with agricultural policies, 1986-05 89 
IV.7 Production of cereals, 1999-04 91 
IV.8 Total cereals market  projections, 2005-12 92 
IV.9 Beef and veal meat market projections, 2004-13 93 
IV.10 Selected sugar indicators, 2005 94 
IV.11 Tariffs and tariff quotas on fishery products, 2006 97 IV.12 Production and consumption of energy, 1998-02 100 
IV.13 Main SME support programmes and instruments, 2000-06 104 
IV.14 Main indicators of aerospace equipment manufacturing, 2002 106 
IV.15 Selected telecommunica tions indicators, 2005 118 
IV.16 Transport by mode, 1995-04 122 
 European Communities WT/TPR/S/177 
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APPENDIX TABLES 
  Page 
 
I. ECONOMIC ENVIRONMENT  
AI.1 Exports by destination, 2000-05 135 
AI.2 Imports by origin, 2000-05 136 AI.3 Structure of exports, 2000-05 137 
AI.4 Structure of imports, 2000-05 138 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
AIII.1 Selected Stat e-Owned Enterprises in the EC 139 
AIII.2 Applied MFN tariff averages by HS2, 2006 143 
 
IV. TRADE POLICIES BY SECTOR  
AIV.1 Overview of the implementation of the 2003 CAP reform, 2006 147 
AIV.2 Applied MFN tariff, by ISIC Rev.2 category, 2006 149 
  
 European Communities WT/TPR/S/177 
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SUMMARY OBSERVATIONS 
 
(1) T HE ECONOMIC ENVIRONMENT  
1. Following the economic slowdown in 
2001-03, real GDP growth in the European 
Communities (EC) picked up to 2.3% in 2004, 1.7% in 2005, and an estimated 2.8% in 2006, mainly driven by private investment and exports.  Growth rates in the ten new Member 
States (NMS-10) were above the EC average, 
contributing to income convergence.  The economic recovery has translated into a decline of unemployment, to 8.8% in 2005, and an estimated 8% in 2006, and was accompanied by strong expansion of 
international trade.  The ratio of public debt to 
GDP in the 25 Member States (EC-25) increased slightly, to around 63% in 2005 and 2006;  thus, although some Member States improved their budgetary situation, measures 
to address the long-term sustainability of the 
public debt would appear to remain needed. 
2. The euro is  the common currency of 
twelve EC Member States.  Sweden and the NMS-10 are expected to adopt the euro at a later stage, while Denmark and the United 
Kingdom have opted to retain their national 
currencies.  Despite sharply increasing energy prices, inflationary p ressures remained under 
control;  EC-25 inflation was 2.1% in 2004, 2.2% in 2005 and an estimated 2.3% in 2006.  
Key interest rates in the euro area remained at 
the historically low level of 2% during 2004 and most of 2005, but have been rising constantly since, to 3.5% in December 2006.   
3. The services sector remains the 
backbone of the EC economy, with a share of 
over 77% in GDP and employment, while agriculture contributes just over 2%.  The EC's share in global value-added in manufactures has been decreasing, reflecting geographical shifts in international processing 
activities and their vertical decomposition.  
The Lisbon Strategy, a ten-year plan adopted in 2000 to increase the EC's competitiveness, was reformulated in March 2005.  Broad economic policy guidelines (BEPGs), mainly 
on the contribution of economic policies to the Lisbon Strategy, identified growth, labour 
market flexibility, and sustainable public finances as priorities for policy action at Member States level.   
4. EC exports and imports both grew at 
an average annual rate of some 10% in the period   2004-06.  The EC's trade account has been in persistent but sustainable deficit.  The EC current account turned from a small 
surplus in 2002 and balance in 2003 to a 
slight deficit in 2004 (0.1% of GDP);  the deficit widened to some 0.9% of GDP in 2005 but narrowed again to an estimated 0.5% of GDP in 2006.  The EC accounts for around half of global foreign direct investment (FDI) 
stocks, making it the wo rld's largest recipient 
and supplier of FDI. 
(2) I
NSTITUTIONAL FRAMEWORK  
5. There have been no substantive 
changes to the institutional framework of the 
EC since its previous review in October 2004.  
Ten countries acceded to the EC in May 2004, and Bulgaria and Romania are set to join in January 2007.  Accession negotiations have started with Croatia and Turkey, and candidate status has also been granted to the 
Former Yugoslav Republic of Macedonia.  The 
EC's trade policy seeks to progressively abolish or lower obstacles to international trade, contribute to sustainable development, and harness the opportunities of globalization.  
Trade liberalization in the EC follows several 
tracks:  multilateral,  reciprocal, and non-reciprocal.   
6. At the multilateral level, the EC is a 
key player in the WTO and very active in the 
DDA negotiations.  In this context, the EC 
seeks improvements in market access for non-agricultural products on the basis of a non-linear formula that will cut the highest tariffs most and offer flexibility for developing countries;  liberalization of agriculture 
according to the July 2004 Framework 
Agreement;   further liberalization of the services sector;  and incorporation of development priorities.  The EC also remains one of the most active Members in WTO WT/TPR/S/177 Trade Policy Review 
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dispute settlement;  as at November 2006, it 
was involved in 36 disputes, 18 as a complainant and 18 as a respondent. 
7. The EC continues to build on a wide 
network of regional trade agreements (RTAs).  
In its RTAs with developing countries, liberalization is usually undertaken asymmetrically, with the EC liberalizing at a faster speed.  The EC considers that its RTAs 
are part of a wider policy of promoting 
multilateralism;  it recently announced its intention to launch new preferential trade negotiations, with market access as the main criterium.   
8. The EC grants at least MFN treatment 
to all WTO Members, and unilateral 
preferences through its GSP scheme and the Cotonou Agreement.  The revised GSP scheme, in force since January 2006, has three 
different arrangements;  the most far-reaching 
of these arrangements, the Everything But 
Arms (EBA) initiative, grants duty-free and quota-free access to the EC market for least-developed countries, with only a few (product) exceptions, to expire in 2008.  Under the Cotonou Agreement, the EC is negotiating 
reciprocal Economic Partnership Agreements 
(EPAs) with the ACP countries;  these are scheduled to enter into force in January 2008.   
9. The EC's extensive network of RTAs, 
together with the large number of countries 
eligible for unilateral preferences, has 
confined the application of its exclusively MFN tariff to nine WTO Members, which accounted for some 30% of its total merchandise imports in 2005. 
(3) T
RADE POLICY INSTRUMENTS  
10. The EC's MFN tariff has remained 
largely unchanged since its last TPR in 2004.   The average applied MFN tariff has increased slightly, to 6.9% from 6.5%, due to increases in ad valorem equivalents (AVE) of non-ad 
valorem tariffs, as a result of a downward 
trend in import prices of certain agricultural products.  By contrast, the average non-agricultural applied MFN tariff (excluding petroleum) is 4% (down from 4.1% in 2004). 
Non-ad valorem tariffs apply to some 10% of the tariff lines, mainly on agricultural goods;  they comprise specific, compound, alternate, 
and variable duties. Applied MFN tariffs on 
agricultural goods (WTO definition) average 18.6% (up from 16.5% in 2004), with rates up to an AVE of 427.9%.  
11. On aggregate, the EC tariff schedule 
shows mixed escalation, negative from the first 
stage of processing to semi-processed goods (because of the high tariff protection for agricultural commodities), and then positive to fully processed goods.  Value-added tax and excise duties apply to imports and locally 
produced goods at the sa me rates;  these rates 
are set by Member States and are not harmonized among the EC.   
12. The EC is modernizing its customs 
administration through the implementation of 
electronic exchange systems to support the 
creation of a paperless customs environment.  Customs controls are based on risk analysis using automated data processing techniques.  Import prohibitions are generally based on international agreements, SPS regulations, or 
on resolutions of the United Nations Security 
Council.  Technical regulations, standards, and sanitary and phytosanitary measures have been under continued review by the Commission;  in certain areas, they have not 
been fully harmonized among Member States.  
Products placed on the market of a Member State must comply, where necessary, with both relevant national and Community-wide legislation. 
13. The EC maintains import licences for 
surveillance, quota management, and safeguards purposes;  98 tariff lines, mostly agricultural goods, are subject to tariff quotas.  The EC remains an important user of contingency trade remedies;  between January 
2004 and September 2006, it initiated three 
safeguard, 27 anti-dumping and two countervailing investigations.  The EC provides export subsidies based on provisions laid down in product-specific common market 
organizations; such subsidies (mainly on European Communities WT/TPR/S/177 
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agricultural products) though on the decline 
remain relatively high.  In value, export subsidies notified by the EC represent approximately 90% of all the WTO Members' 
notified export subsidies.  Assistance to 
exporters is also provided at the Member State level.   
14. New EC-wide legislation on public 
procurement entered into  force in 2004, with a 
view to simplifying the legal framework and 
adapting it to the electronic era.  The EC's competition policy seeks to enforce regulations on anti-competitive practices, and enhance competition.  Enforcem ent focuses on the 
elimination of cartels and abuses of dominant 
position.  New guidelines were adopted in 
2006 on regional aid provided by Member States.  The EC does not have any state-trading enterprises within the meaning of GATT Article XVII;  there are numerous state-
owned enterprises that engage in international 
trade.  
15. The intellectual property rights regime 
is governed by both EC regulation and Member States' legislation.  While no major change to the IPR regime has taken place 
since the last TPR of the EC, the Commission 
launched a review of patent policy in January 2006, focusing on, inter alia, the possible introduction of an EC patent.  Various measures have also been taken to ensure more 
effective IPR enforcement.   
(4) S
ECTORAL POLICIES  
16. Services constitute the EC's most 
important sector in terms of contribution to real GDP and employment. With a view to 
eliminating the remaining differences in 
regulation across Member States, the EC is taking steps to create a genuine internal market for trade in services by 2010. Since its last Review in 2004, the EC has taken measures to address some structural problems, 
notably the completion of the Financial 
Services Action Plan 1999-05; the launch of a new financial services strategy 2006-10; and the Action Plan for transport 2002-10. Further liberalization of services should improve the 
efficiency of other economic activities. 
17. The manufacturing sector accounts for 
about 20% of the EC's GDP and for some 
three-quarters of its merchandise exports, and 
remains a major beneficiary of state aid. As a result of declining productivity growth in manufacturing, the Commission set out a new industrial policy in 2005, which, together with 
measures at Member State level, is aimed at 
fostering the competitiveness of the sector. Using the ISIC definition, MFN tariffs on manufactured imports average 6.8%, with rates ranging up to 427.9% (an AVE) on certain processed food products. 
18. The EC is the world's largest energy 
importer, the second largest consumer, and is about 50% self-sufficient in energy. Faced with increasing oil prices, the EC is seeking to save 20% of its energy consumption by 2020 
through, inter alia, the use of energy-efficient 
technologies, and has also set a target of 21% renewable electricity by 2010.  Some of the key policy aims of the EC in the subsector are security of energy supply, promotion of competition, and completion of the internal 
market by 2007. Imports of electricity are duty 
free. 
19. The EC is implementing the 2003 
reform to its Common Agricultural Policy (CAP), mainly through the decoupling of 
payments from production; this has increased 
the exposure of farmers to world market signals. As a result, the combined share of market price support relating to output and input (those that are the most trade distorting) 
fell from 71.7% of support to producers in 
2003 to 63.8% in 2005.  The total amount spent on the CAP was 45.5% of EC expenditure in 2005. Using the ISIC definition, MFN tariffs in agriculture, hunting, forestry and fishing average 10.9% , with rates ranging 
up to 167.2%. Border protection and domestic 
support have somewhat insulated certain products from compe tition and helped to 
generate surpluses. The policy has thus made subsidies indispensable for the export of some WT/TPR/S/177 Trade Policy Review 
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of the surpluses.  The ongoing reforms aim to 
redirect this policy. 
(5) T RADE POLICY AND TRADING 
 P ARTNERS  
20. The EC pursues a strategy of trade 
liberalization through negotiations at the multilateral, regional, and bilateral levels. It 
considers the DDA as a key priority, having been fundamental in its launch and having 
made a large number of proposals in various 
areas. The EC's contin uing commitment to the 
WTO will be essential to the successful completion of the DDA. Nonetheless, the decision by the EC to launch new PTA negotiations could further complicate its trade 
regime, and divert interest from the 
multilateral trading system. 
21. The EC is the world's leading exporter 
and the second-largest importer of goods, and its economy has continued to support global 
growth by maintaining its market open. Nevertheless, trade barriers remain 
substantial in a few but important areas, notably agriculture. Reduction/elimination of export subsidies and tariffs on agricultural 
imports would benefit EC  consumers, improve 
resource allocation, and significantly contribute to the promotion of the world economy. 
22. The EC remains the world's leading 
exporter and importer of commercial services. 
The Services Directive builds on the so-called "fundamental freedoms" of the EC Treaty, including the freedom of establishment and the free-movement of services. However, significant barriers to trade in services remain 
both at the intra-EC level and vis-à-vis third 
countries;  these include monopolies and differences in regulation across Member States. Addressing these distortions would boost the overall competitiveness of the 
economy.